What’s the State of Asset Finance Solutions in Canada

There must be a reason why asset finance solutions are becoming one of the most popular solutions to business financing in Canada. Let’s look at asset based lending rates in Canada and the types of solutions that might be available for your firm.

Because of the broadly interpreted nature of the term asset finance solutions lets be really clear on what we are talking about here. Asset based lines of credit is really the essence of our topic and discussion. Simply speaking it’s the financing that your firm secures, on a revolving of operating basis, and it’s collateralized by receivables and inventory.

But wait, we should also add that in many cases your firm’s equipment and unencumbered fixed assets are also eligible for operating financing. Most business owners realize that Canadian chartered banks generally do not allow you to monetize or borrow daily against equipment and fixed assets such as real estate. Asset finance, i.e. our asset based line of credit does just that? That is one of the reasons why it is significantly different.

So we have made the statement that asset finance solutions are becoming more and more popular everyday – why is this so? Think alternative, think liquidity, think ‘ less rules ‘. That’s what an asst based line of credit is all about. We tell our clients we haven’t seen one case where a customer’s asset based line of credit didn’t improve significantly from a viewpoint of borrowing power, with fewer rules.

What are those ‘ rules’ we are referring to? Let’s put it this way, you couldn’t measure our respect for the Canadian banking system in Canada – it’s immense. But the reality is that typically small and medium sized businesses in Canada – ( lets define that as , say anything from between 1 -30 Million in revenue ) are challenged when in comes to operating lines of credit .

Asset finance solutions via an ABL facility (ABL = asset based line of credit) remove a huge part of that challenge. They monetize assets, allowing you to borrow against them on a daily basis. Very little if any emphasis is placed on balance sheet ratios, profitability (it helps and is nice to be profitable though!) personal guarantees, or outside collateral.

Are asset based lending rates different from bank credit facilities? In some cases they actually are the same of better from a viewpoint of a pure rate discussion, where they differ is that if you firms facility size is under the 3 Million dollar range from a viewpoint of A/R and inventory balances. At this point you can expect to pay a significant premium compared to a bank line of credit.

Is the ‘ premium’ on asset based lending rates worth it to your firm? It absolutely isn’t worth it, IF… and thats a big IF… you don’t place value on increased borrowing power, the ability to borrow against your assets as you grow, as well as the increased flexibility around the terms and conditions of you facility . That’s a big IF..! and we think clients get our point when we say that any premium you might pay is easily justified .

Asset based lending rates have some other considerations also, but frankly they don’t differ all that much from any business financing facility – so you might be expected, depending on who you are dealing with , to pay an origination fee, a termination fee, and standard legal expenses to set up an securitize the facility .

Are asset based lines of credit becoming more popular in Canada – absolutely! Will they cost you more – maybe and maybe not – depending on the overall size and quality of the facility you require. Are the advantages of increased liquidity important for you – that’s for you to decide! Speak to a trusted, credible and experienced Canadian business financing advisor to learn more about asset finance solutions in Canada.

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About The Author

Hey everyone. My names Jean and I'm a Canadian who loves politics, finances, and the changing of the world. Everyday new laws or passed that change the way our world works. I like to break down these issues, put them into readable language, and discuss them with others.